Financial accountigs, overhead rate

A manufacturing company has a plant with the two departaments: Department A and Department B. The plant’s overhead includes the plant manager’s salary, warehouse staff and equipment and is budgeted in the amount of EUR 200,000. Last year, the actual plant’s overhead was EUR 190,000. Department’s A and Department’s B overhead consists mainly of depreciation and other machine-related expenses. The following data represent the plant’s performance for the last year:

                                                                      Department A                         Department B

Budgeted department overhead

(excluding plantwide overhead)                     EUR 100,000                           EUR 500,000

Actual department overhead                           EUR 120,000                           EUR 550,000

Expected activity:

Direct labor hours                                                       50,000                                       10,000

Machine hours                                                            20,000                                       20,000

Actual activity:

Direct labor hours                                                       51,000                                         9,000

Machine hours                                                            22,500                                       22,000

In order to prepare the price proposal for several jobs for the upcoming period, the following data referring to the job No.100 is available:

Direct materials                                                                                                 EUR 20,000

Direct labor cost:

Department A (2,000 hours)                                                                               EUR 30,000

Department B (500 hours)                                                                                    EUR 6,000

Projected machine hours:

Department A                                                                                                                   100

Department B                                                                                                                1,200

Units produced                                                                                                           10,000

Please round overhead rates and unit costs to the two decimal places and round other cost calculations to the nearest currency unit and perform the following:

1. Assume that the Company uses a single overhead rate allocation method to assign plant and department overhead costs to jobs. Use expected direct labor hours to compute the overhead rate. Find the overhead rate and determine the projected amount of total manufacturing costs per unit for the units in the job No.100.
2. Recalculate the projected manufacturing costs for the job No.100 using the three separate rates: one rate for plant overhead and the two separate department overhead rates, all based on machine hours.
3. The Company sales policy states that job price proposals are calculated by adding 30 percent to total manufacturing costs. What would be the price proposal for the job No.100 using (1) the overhead rate from Question 1 and (2) the overhead rate from Question 2? Please explain why the price proposals differ. Which of the overhead allocation methods would you recommend and why?
4. A subcontractor has offered to produce the parts for the job No.100 for a price of EUR 8 per unit. Assuming that the Company sales force has already committed to the price proposal based on the calculations in Question 2, should the Company buy the EUR 8 per unit part from the subcontractor or continue to make the parts for the job No.100 itself? Please explain.
5. Would your response in Qusetion 4 change if the plant could use the facilities necessary to produce parts for the job No.100 for another job that could earn an additional profit of EUR 15,000? Please explain.